Jeff and Annie Strain Sue NetEase for $900M, Alleging Fraud Misrepresentation to Investors

Jeff Strain, a prominent figure in the gaming industry known for co-founding ArenaNet and co-creating State of Decay, along with his wife Annie Strain, have initiated a $900 million lawsuit against NetEase, the creators of Marvel Rivals. The lawsuit, filed in January in the Orleans Parish civil district court and subsequently moved to federal court, accuses NetEase of causing the devaluation and eventual closure of their studio, Prytania Media Group, through spreading fraudulent rumors among investors.

The complaint, as reported by IGN, begins with a strong statement: "This case is about the destruction of the careers of two gaming industry veterans and their company by a Chinese entity seeking to avoid compliance with United States law." The Strains' narrative delves into their complex relationship with NetEase, which initially invested in one of Prytania's subsidiaries, Crop Circle Games, acquiring a 25% stake and placing Han Chenglin on the board alongside Jeff and Annie Strain.

Initially, the relationship was described as positive. However, tensions arose as NetEase allegedly expressed concerns over compliance with U.S. foreign investment laws. The complaint details emails from NetEase requesting that their investment remain "low profile" to circumvent regulations set by The Committee on Foreign Investment in the United States (CFIUS). They also suggested opening branches in Canada or Ireland to facilitate their investment.

The complaint further alleges that NetEase's ties to the Chinese Communist Party were a point of contention, with references to Tencent's designation as a "Chinese military company" by the U.S. government and reports of NetEase CEO Ding Lei using the threat of CCP retaliation against Activision Blizzard. Additionally, it was claimed that Lei was in the process of immigrating to the U.S. and purchasing a $29 million Bel-Air mansion from Elon Musk, expressing fears that his immigration could be jeopardized if NetEase's investments became public.

As the Strains continued to question NetEase about regulatory compliance, their relationship deteriorated. Financial difficulties emerged, leading Crop Circle Games to lay off and furlough staff in early February 2024. Amidst internal confusion and anger, Jeff Strain received a text from a venture firm's managing director on February 22, alleging fraud and misuse of funds at Crop Circle Games. The Strains traced these rumors back to NetEase, with Han Chenglin admitting in a March board meeting that he had expressed surprise at the company's rapid depletion of funds.

Following these allegations, other investors withdrew funding from Prytania, and the company was unable to secure new investments. The complaint states that Prytania and its subsidiaries' value plummeted from an estimated $344 million to nearly nothing, leading to the complete shutdown of Crop Circle Games by the end of March.

In April, Annie Strain published a letter on the company website attributing the company's struggles to the industry's economic downturn and difficulty securing funding. She also mentioned a potential article by Kotaku reporter Ethan Gach, which she claimed would have disclosed her personal health issues without her consent. The letter was soon removed, and Kotaku did not publish the article. A week later, Prytania subsidiary Possibility Space closed, with Jeff Strain citing employee leaks to the press as the reason, without mentioning NetEase or the fraud allegations.

The Strains and Prytania Media are suing NetEase for defamation, unfair trade practices, tortious interference with business relations, and negligence, seeking damages exceeding $900 million—triple their company's previous valuation.

In response, NetEase issued a statement to Polygon, denying the allegations and affirming their commitment to integrity: "The allegations by Prytania Media and its founders Annie and Jeff Strain are wholly without merit, and we emphatically deny and will vigorously defend ourselves against them. Our record as a global gaming company speaks for itself, and we remain committed to conducting business with integrity. We are confident that the legal process will vindicate our position and shed light on the real reasons behind the demise of the Strains’ studios."